We’ve said it many times, but we’ll say it again because it’s important: life insurance is not one-size fits-all. Your life insurance needs are probably different than Susie Johnson down the street’s life insurance needs.

» Calculate: Life insurance needs calculator

And guess what else? You will probably be in a different insurance risk class than Susie too.

Life insurance companies decide who pays how much for life insurance based on risk classifications. Simply put, actuarial scientists get together and determine what factors play into a person’s life span calculations and give this information to life insurance companies. The life insurance companies use the actuarial findings to create underwriting guidelines. Each of the individual life insurance companies follows their own underwriting guide. This is why when you run term life insurance quotes on Quotacy you’ll see different prices alongside the different carrier options.

For example, while Insurance Company A decided that an applicant who flies single-engine planes as a hobby is just too risky to insure, Insurance Company B decided that they are OK with insuring that client as long as they pay a little extra. The life insurance industry is extremely competitive, so the different companies allow flexibility on certain factors in order to remain competitive.

How do I get assigned to a risk class?

Your original quote is based on your smoking status, height/weight, gender, family history, and age. Once you apply, the answers you provide to health and lifestyle questions will then be taken into account by your agent and internal underwriting team to provide the most accurate risk class and quote possible.

Again, each life insurance company underwrites a bit differently. We work with many life insurance companies, so your chances of getting approved for a great policy at an affordable rate is higher than if you applied through an agency who only worked with one life insurance company. This is another reason working with Quotacy can benefit you.

We work with many life insurance carriers, so your chances of getting approved for a great policy at an affordable rate is higher than if you applied through an agency who only worked with one life insurance company.

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What are the different risk classifications?

If you don’t use tobacco, the typical classifications are (starting with the best offering):

  • Preferred Plus
  • Preferred
  • Standard Plus
  • Standard

If you use tobacco, you’ll most likely be put in one of the “smoker” classes. Cigarette use will 100% of the time put you in a smoker class but certain companies are more flexible if you only smoke cigars, use chewing tobacco, or e-cigarettes. But again, all the companies view these usages differently. There are two main smoker classifications:

  • Preferred Tobacco
  • Standard Tobacco

Essentially, if you are offered “Preferred Tobacco” this means that after reviewing your health, family history, and lifestyle habits, the underwriters would have considered you “Preferred or Preferred Plus” if it wasn’t for that smoking habit. Same goes for “Standard Tobacco” and “Standard or Standard Plus.” If you have a complicated health history, you may be “table rated.” The table rating system typically means that your pricing for life insurance will be the Standard price plus 25% for every step down the table you are.

» Learn more: Life Insurance Risk Classes for Cigarette Smokers

For example, if you had a heart attack within the last couple years, Insurance Company A may classify you as Table B. This means your premiums would cost the Standard price of, let’s say, $40 per month plus 50% which would be $60 per month instead. Insurance Company B may classify you as Table C, which means you would pay Standard plus 75%, so $70 per month.

Take a look at the table below for an idea on how risk class correlates with the cost of life insurance.

The Average Monthly Cost of a 20-Year $250,000 Term Policy for a 30-Year-Old Male Based on Risk Class
Preferred Plus$16
Preferred$20
Standard Plus$24
Standard$28
Preferred Tobacco$50
Standard Tobacco$64
Table A$35
Table B$42
Table C$49

Now you know why you have to answer quite a few questions about yourself and complete a medical exam when you apply for life insurance. If life insurance companies didn’t assign risk classes, then healthy individuals would pay the same price as their less healthy counterparts. This doesn’t make sense for you or for the life insurance industry.

If an overweight, cigarette smoking, single-engine plane flyer paid the same premiums as a marathon running schoolteacher, then one of two things would need to happen. A) Both policyowners would need to pay extremely high premiums to make up for the money the life insurance company would lose in death benefit payouts, or B) the life insurance company would go bankrupt with both policyowners paying such low premiums and then no families would receive death benefits.

There’s a reason to all the madness and that’s to ensure your beneficiaries receive the benefit you planned for them. Get a term life insurance quote today and see what your life insurance premiums may cost. It’s easy, anonymous, and the first step in financial protection for your loved ones.

References:

Understanding Life Insurance Ratings, LifeHappens.org, October 2013

The Basics: Underwriting, Legal & General America

 

Photo credit to: Michał Parzuchowski

 

About the writer

Headshot of Natasha Cornelius, a life insurance writer, for Quotacy, Inc.

Natasha Cornelius

Marketing Content and Social Media Manager

Natasha is a content manager and editor for Quotacy. She has worked in the life insurance industry since 2010, and making life insurance easier to understand with her writing since 2014. When not at work, you can find her throwing a tennis ball for her pit bull mix, Emmett, or curled up on her couch watching Netflix. If it’s football season, the Packers game will be on. Connect with her on LinkedIn.

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